It is – also unsurprisingly – a similar story on the markets. As John Rosier observes in his latest investment diary, the FTSE All-Share Total Return index is down 20.5 per cent, the worst fall of any major market, and for much the same reason that the hit to the UK economy has been so bad – put simply it is chock-full of cyclical businesses and offers very limited exposure to the industries that have been able to power through the Covid crisis.
There is, nevertheless, an optimism that the downturn is merely a temporary blip and that, after three months of domestic incarceration we will all be off spending like there’s no tomorrow. You can see that view reflected in the big risers on the FTSE All-Share this week – Cineworld (CINE) tops the chart, along with embattled retailers Superdry (SDRY) and Ted Baker (TED), and Wagamama-owner Restaurant Group (RST). It seems the market is in bottom-fishing mood.
I would urge caution, though. Monthly GDP figures may indeed show a bounceback supportive of the idea that pent-up demand is being unleashed – the economy grew 11.3 per cent in May and June as the country began to gradually reopen. But this still means the economy is a sixth smaller than pre-Covid levels, just as house prices are still below their February peak despite a widely reported jump in July, and the urge to spend or move may soon by subdued by rising concerns in the job market. I noticed that recruiter PageGroup, which you would think has a pretty good view of the employment outlook, had trimmed a tenth of its own workforce at the end of June – it seems inevitable that many furloughees may not make it back to full-time employment when the government starts winding down the scheme, and I see few reasons to buy those consumer cyclicals.
Of course, it may be that all of this will not matter a jot in the end if governments around the world decide to fully embrace Modern Monetary Theory and keep economies on permanent life support with endless money printing. It doesn’t have the feel of something that will end very well, but as the US debates further stimulus measures it also feels like the direction in which economic policy is heading. And it may be the only way.
